How Should I Have Spent my Tax Refund?

I filed my tax return at the beginning of February 2018 and received a refund of nearly $10,000.

My 2018 refund was the result, in part, of my transition from the law firm to my current job in the middle of the year. The law firm withheld the maximum amount of certain taxes (e.g., social security tax) from my pay prior to the departure from the firm. However, my new employer did not take my prior employer's withholding into account. This means that too much of my pay was withheld and I had to wait for that pay to come back to me in the form of a tax refund.

In the interim between filing my taxes and receiving my refund, I fantasized about spending the sum on a trip to Europe, a new wardrobe, or updated furniture for the house. (Do not get me started about my family room couch--a now too small white couch that I originally purchased in 16 years ago.)

Instead, when my refund hit my bank account, I used it to make a mortgage principal payment that will save me up to $17,667.51 in interest expenses over the life of the loan and shorten the term of the loan by up to 13 months. Here are some reasons that I wanted to pay down my mortgage:

1. In the near term, I may recast my mortgage. As nerdwallet explains here, a recast is a reamortization of a mortgage that results in reduced interest expense without lengthening the term of the loan. Why would I do such a thing? I'd consider it if I were to move out of my home and convert it into a rental because the recast would allow me to maximize cash flow from the property by reducing my monthly mortgage payment.* (Currently, my bank does not require a minimum lump sum principal payment to recast or I probably would have invested my refund elsewhere in the interim.)
2. Regardless of whether I convert my home into a rental, I've decided to pay off my mortgage by a certain age. Especially as an unmarried person, I worry about a future disability that might keep me from working and, by extension, paying my mortgage. Even if such a disability never comes to pass, owning my house outright will give me more flexibility (to work fewer hours or a different, more "fun" job) as I age. When I reach retirement age, I may be very alone in this world with no one to lean on but myself.
3. I couldn't come up with a better use for my refund that would be accretive to my net worth. I don't have debts other than my mortgage. My emergency fund is fully funded. I have plenty of investments in the market (and continue to be bearish on equities), which are constrained by my employer's compliance policies.

It turns out that my mortgage principal payment may have been a not-so-good idea. About a month after I made my principal payment, Financial Samurai posted this article about why it's a bad idea to pay off a mortgage when the yield curve is inverted. How do you think I should have spent my tax refund?

*You may raise an eyebrow given the historically low interest rates offered by banks over the last several years. While it's important to remember that my mortgage amounts to a "cheap" loan due to a low interest rate, I'm primarily aiming to get the aggregate amount of my mortgage payment, property tax and homeowner's insurance below the prevailing rental rate for homes similar to mine.

Peloton: 150 Rides In

In January, I wrote about completing my first 100 rides or cycling class on the Peloton I purchased in August 2018. Last weekend, I finished my 150th ride. This is a milestone I wanted to reach during Q1 2019. I'm a little behind schedule.

Generally, rides 101-150 were shorter and less intense than the first 100. I've included some data points below:

Rides 1-100

• Average length: 45 minutes
• Average output: 332 watts
• Average distance: 13.15 miles
• Average calories burned: 426 kcals

Rides 101-150

• Average length: 38 minutes
• Average output: 259 watts
• Average distance: 10.71 miles
• Average calories burned: 331 kcals

What happened? I felt blue in January and February. It was also the case that at the beginning of the year I finished a "collection" of 45 minutes classes and started two collections of 30 minute classes. This explains the drag on my numbers in part, but I was also bringing less intensity to each ride.

This isn't the end of the world. A workout doesn't need to be perfect to be worth doing. Still, I hope to crank it up over the course over the next 50 rides before I check back in.

The big win here is that I'm still exercising consistently and I've added regular stretching to the routine (more on stretching in a later post). Since my Peloton was delivered in August 2018, I've cycled 1,836 miles over 6,350 minutes.

I'm hoping to complete 350 rides by the end of the year. Onward!

Paying off my Car Loan

Nearly a year and a half ago, I bought a new car. The safety of my previous car, which I'd been driving since 2005, was in question. I had been commuting between Austin and Dallas each week for over a year and my family wouldn't relent--they wanted me to buy a new car. 

I caved.

At the time of the purchase, I felt that a transition from a law firm to in house role wasn't far off. This meant that I was nervous about my future earnings, which is why I ended up taking out a low interest loan to purchase my new car even though I could have paid cash. 

In this instance, my risk aversion proved sound as the following events took place in the six months after I purchased my new car:

• I had a miscarriage that resulted in $6,500 in out of pocket medical expenses.
• I was hit by a SUV while walking across the street next to my office. The accident was a hit and run that resulted in a concussion and injury to my cervical spine.
• I was rear-ended on I-35 by an uninsured driver.
• I quit my job at the firm and took a position in house.

It took nearly ten months in my in house role to build confidence and a clear picture of what my earnings and expenses will look like going forward. 

The above is a long way of saying: I paid off my car loan last month and my new title arrived a few weeks later. Paying off this debt was a great feeling, although nothing will trump the excitement of paying off my student loans.

I'm down to just one debt: my mortgage.

Sailing Lesson on Lake Travis

Earlier this year, my boyfriend and I took a sailing lesson on Lake Travis. He knows how to sail and didn't really need a lesson, but it was a great way to get out on the water and introduce me to the basics. It was one of the first sunny days of the year and, because our lesson coincided with a major sporting event, there was hardly anyone on the water. It was bliss.

We enjoyed it. I wish we could do something like this on a regular basis.  If only hobbies like this one weren't so expensive (this is the sort of thing that makes me rue the loss of my big law salary)!

The first year of "life after law firm" has kept on even keel. The big win has been establishing a regular exercise routine, catching up on sleep and generally improving my health. I've also spent time optimizing and automating my finances. I find that I sorely miss the intellectual challenge of law firm work. Case in point: a few weeks ago I found myself contemplating a tax LLM out of boredom. The big disappointment has been that I haven't taken a vacation. Because of the government's unpaid parental leave policy, I'm hoarding PTO, sick leave and comp time.

Still, I'm grateful for the ability to ditch my work email to take a sailing lesson in peace.

Next on our list of outdoorsy to dos: camping.

I'm going to try a regular blogging schedule--posting each Sunday--with the hopes of reconnecting with other bloggers, increasing the time I spend writing on non-legal topics each week, and pushing myself to do more on weekends that take care of chores.